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IEEFA Foresees ‘Stranded Assets, Depleted Finance’ in British Columbia’s LNG Strategy

The Conference Board of Canada stands accused of “doubling down on a bad hand” after the Cleveland-based Institute for Energy Economics and Financial Analysis (IEEFA) reviewed its latest assessment of British Columbia’s prospects for a successful liquefied natural gas (LNG) boom.

A Conference Board report issued in late July “claims an expansion of the British Columbian LNG industry could add almost 100,000 jobs annually and more than $158 billion in revenue for provincial and federal governments,” IEEFA writes in a release.

But “the most important fact is that the fundamentals of British Columbia’s LNG export cost structure are not competitive enough to keep private capital interested,” said Melissa Brown, IEEFA’s director of Asian energy finance studies. “Although many pundits cite political and regulatory issues, Canadian LNG’s biggest problem is profitability.”

She added that the Conference Board’s “exaggerated demand assumptions and disregard for China’s manifest price sensitivity are the fatal misunderstandings of its argument.” That means the Ottawa-based think tank is ultimately calling on provincial and governments to buy in to “sustained subsidies that may only yield stranded assets, depleted finances, and delayed retraining obligations.”

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Of the 18 promising LNG projects in B.C. the Conference Board inventoried in its previous report in 2016, only one has been confirmed and another three are “struggling and uncertain”, the release notes—with one of the cancellations coming from the company that sponsored that earlier report. Even without accounting for the COVID-19 pandemic, and its role in driving down demand for gas, “the industry’s situation hasn’t improved over the last four years,” IEEFA notes. “Asian consumption growth slowed, new sources came online, and supply contracts became less expensive.”

And with China getting organized to increase domestic production, negotiating supply deals with less far-flung suppliers in Central and Southwest Asia, and committing to carbon neutrality by 2060, “hopes for salvaging a long-term decline through increased sales to China are unlikely to bail out the LNG industry.”